General Power (GE) is approaching a $ 30 billion deal to combine its aircraft leasing business with Ireland’s AerCap Holdings (AER), as the coronavirus pandemic puts its core aviation business to the test. GE shares rose and AerCap shares rose.
The industrial conglomerate could announce the merger as early as Monday, sources told the Wall Street Journal. The move could accelerate GE’s turnaround, improving its balance sheet and cash flow.
GE Capital Aviation Services (GECAS) is the largest remnant of the company’s once powerful financial services unit, which dragged GE shares during the financial crisis of 2007-2008.
GE pulled out of the loan business even before embarking on a vast multi-year restructuring in recent years, which has seen sales of the biotech unit, the light bulb business and a majority stake in its oilfield services segment.
GECAS owns or has orders for 1,600 aircraft and lost $ 786 million last year in revenue of $ 3.95 billion. Rent jets manufactured by Boeing (BA) and Airbus (EADSY) to airline customers.
Meanwhile, AerCap has 1,400 aircraft owned or ordered. The merger would give the potential new entity a greater stake in negotiations with aircraft manufacturers.
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The shares rose 4.2% to close at 14.17 on Monday’s stock market trading, reaching the highest level since July 2018. AerCap was up 13.25% and rival Air lease (AL) added 5.25%.
GE shares are extending from a tight entry of 12.01 in three weeks and an alternate entry around 11 out of support at the 10-week line, according to MarketSmith chart analysis.
The relative force line for GE stocks is rising within a multi-year downtrend. The rally reflects expectations that GE’s turnaround will benefit from a recovering economy as a covid vaccine is rolled out.
GE Aviation, the industrial giant’s jet engine unit, has been hit as the pandemic shakes up global air travel. GECAS also suffered, as airlines sought to defer lease payments and the purchase of new aircraft.
GE, which cut thousands of jobs in aviation, will update the financial outlook for 2021 at an investor day event on Wednesday.
Earlier, GE CEO Larry Culp warned of a long recovery from the pandemic. Management also promised a smaller commercial aviation business.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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